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Lending to MSMEs can become Rs 15-trn business in next 5 years: Study 

Business Standard , Aug 20, 2018

As more and more small and medium enterprises adopt technologies, digital lending to the sector can become a Rs 15-trillion opportunity for the lenders over the next five years, says a survey.

According to a study jointly conducted by BCG, FICCI and IBA, currently, digital lending to MSMEs accounts for only 5 per cent of total lending to the sector and can increase to 21 per cent over the next five years.

"The key drivers of this growth are increasing MSME digitisation and readiness for digital lending as well as an ecosystem readiness in terms of data sharing and access," the report said on Monday.

This significant likely jump will close the gap with digital retail lending, which is expected to reach around 48 per cent of the total retail lending in the next five years.

"With a high degree of variability in the quality of assets in the MSME segment and the small ticket size of advances, success in this market will belong to players who have the resources and capabilities for reliable credit underwriting, and a comparative cost advantage through end-to-end digitisation," says the report.

According to the study, currently, of the total formal credit of around Rs 100 trillion, only 25 per cent is extended to MSMEs now. Spurred by the introduction of the goods and services tax (GST), small businesses are increasingly getting formalised as well as digitised.

"MSME lending can be the largest source of value creation for the financial services industry. It's both an obligation and an opportunity whose time has come. It will have a multiplier effect on GDP," says the report.

According to the study, MSME lending, especially in smaller ticket sizes is ready for digital with significantly improved turnaround time.

"Initially, the focus will be on small ticket unsecured lending. However, as the ecosystem matures, even the secured lending will become more digital," it said.

The study finds out that multiple digital enabler models have emerged which support MSME lenders.

"Multiple enabler models have emerged to support end-to-end digital lending journeys. Most of these models focus on data-primarily using common platform based access and analysis," says the report.



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